Under fixed rates, which one of the following statements is the MOST accurate? A) Monetary policy can affect only output. B) Monetary policy can affect only employment. C) Monetary policy can affect only international reserves. D) Monetary policy can not affect international reserves. E) Monetary policy can only affect money supply. ANSWER C
Which of the following is a FALSE statement concerning purchasing power parity? A) Purchasing power parity states that dollars will tend to exchange for pounds at a rate that maintains a constant purchasing power of a given quantity of a currency. B) Over the long term, a Big Mac in New York will tend to […]
Most trade between Mexico and the United States is intrafirm. Indicate whether the statement is true or false ANSWER TRUE
What is the Fisher Effect? Provide an example. What will be an ideal response? ANSWER All else equal, a rise in a country’s expected inflation rate will eventually cause an equal rise in the interest rate that deposits of its currency offer. Similarly, a fall in the expected inflation rate will eventually cause a […]
The external shock that hit Mexico and other Latin American countries in the early 1980s that caused the Lost Decade was a collapse in world oil prices. Indicate whether the statement is true or false ANSWER FALSE
The two-country, multi-product model differs from the two-country, two-product model in that, in the former A) the relative wage ratio will determine the pattern of trade ( which good is exported by which country. B) which country will export which product is determined entirely by labor productivity data. C) full specialization is likely to hold […]
The U.S. is the world’s largest creditor. Indicate whether the statement is true or false ANSWER FALSE
Fiscal expansion under fixed exchange rates will have what temporary effect? A) the money supply will decrease. B) output will decrease. C) the exchange rate will increase. D) the exchange rate will decrease. E) there will be no effect. ANSWER D
Illustrate the effectiveness of monetary policy with fixed exchange rates. What will be an ideal response? ANSWER The required intervention to maintain the fixed exchange rate will undo any effect on income of an increase or decrease in the money supply. Illustrate by shifting LM curve and then explaining how intervention will return LM […]
It is still the conventional wisdom in the U.S. that compliance with NAFTA requirements is having a deleterious effect on U.S. highway safety standards, on U.S. pollution and other environmental standards, and on U.S. jobs. What facts would proponents of an expansion of NAFTA (e.g., to include all of Central and South American countries) need […]
